A new dawn for renters? Major London landlord scraps deposits and fees and allows tenants to lock in for longer

Last year Government revealed plans to force letting agents to scrap sky high fees for renters: now a major London landlord has gone one step further and scrapped deposits.

Get Living, the company that owns and rents out the former London 2012 Athletes’ Village in east London, has announced that from 14 June it will no longer require renters to put down a deposit to secure a home there.

New residents in the area - now called East Village, E20 - also won't have to pay any fees and will be able to sign up for longer term tenancy contracts if they want.

Existing tenants in the development will also have their deposits handed back to them next month, a total of £3million. There's a small catch - to qualify you will have to pass tenant referencing or have a guarantor.

Renters in London's East Village development will see their deposits handed back by July

While it will be welcome news for those living in the east London village, millions of renters across Britain still face finding thousands of pounds to secure rented accommodation.

This is on top of letting agency fees that can rack up to several hundred pounds, plus having to pay the first month's rent up front.

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Neil Young, chief executive of Get Living, says: 'We were the first to revolutionise the rental experience in the UK by removing agency fees and introducing longer term tenancies as standard.

'We know that the cost of living can be high so, as a responsible landlord with a long-term perspective, it is important for us to be able to identify and address areas where we can alleviate the burden on our residents. Scrapping security deposits as a pre-requirement and returning deposits to current residents is yet another step we are taking to show we are firmly on the side of renters.'

AVERAGE RENTS IN THE UK

Apr-17

YoY %

MoM %

Av. £

UK

0.82%

0.04%

1,191

England

0.79%

0.04%

1,223

Scotland

1.21%

0.09%

723

Wales

1.30%

0.10%

636

Northern Ireland

-1.01%

-0.37%

552

London

-0.81%

-0.09%

1,878

UK without London

1.72%

0.12%

753

Source: Landbay

Landlords have traditionally demanded renters pay a security deposit - typically equal to either one month's rent or six weeks rent for higher value properties - to cover the cost of any damage they might cause.

WHEN WILL DEPOSITS BE RETURNED?

To reward residents who have taken good care of their home, if rental payments are up to date, Get Living will waive any damage and cleaning costs if it totals less than one week’s rent.

Existing Get Living residents will have their deposits returned from early July 2017.

Deposits will be returned first to those residents who have lived in the same East Village home for the longest and it’s expected that the returns process will be complete by the end of the year.

To be eligible, requirements include residents needing to have passed referencing or have a guarantor and be up to date with their rental payments.

But as rents have sky rocketed, so too have these deposits. According to buy-to-let lender Landbay, the average rent paid in the UK is now £1,191 a month.

'We launched Get Living four years ago this month and in that time our average deduction from deposits has been just a few days’ rent, with the majority of our residents getting their deposits returned in full,' says Young.

'We have great relationships with our residents and, given they are taking such good care of our homes, why should we hold six weeks’ rent? We can do this at Get Living because we have the scale and track-record to know it will work.'

How does it work?

The East Village development is currently the country’s largest single-site private rent scheme and is home to more than 3,000 renters in 1,439 homes. Get Living is expanding across the UK, and already has a further 4,000 homes in the pipeline.

It is this scale that means the company can afford not to take deposits from tenants.

For example - let's say your monthly rent is £1,000. The security deposit you'd likely be asked for is £1,000.

Get Living says that on average, it claims back only 'a few' days from this deposit - three days out of 30 days is 10 per cent - £100 per tenant.

This means, that across the firm's whole property portfolio, it is keeping just 10 per cent of all the cash deposits it takes from tenants who cause damage to the property.

Get Living is expanding across the UK with a further 4,000 homes in the pipeline

Because all landlords are legally required to hold tenants' deposits in a separate protection scheme, the other 90 per cent of this cash is left untouched by both the landlord and tenant. It's of no value to either party in other words.

Get Living has decided that instead of penalising tenants' cashflow like this, they are prepared to meet the cost of the 10 per cent of deposits they actually end up retaining.

This means the damage costs will instead be paid by them directly, out of their profit. The firm will still be charging for damages but only if the cost totals more than one week’s rent.

This is a commercial decision - it could be that they believe this will be worth it financially for them because more tenants are attracted to their properties, or that their longer term tenancy agreements mean they have fewer other costs to bear - such as months where the property is unoccupied for instance. It may also be that they're hoping to see fewer tenants negotiate their rent down because they don't have to stump up a large cash deposit.

Will all landlords stop taking deposits?

It's highly unlikely that all landlords will scrap deposits. This is because most landlords in Britain are private individuals with reasonably small portfolios - they might own around 10 properties in a local area.

The small scale of landlords in this position means that if one property is damaged, the cost of repairing that hits their profits much harder. Proportionately - the costs are higher compared to the total value of rents they earn across the board.

This is why landlords started to take deposits and it's why they're likely to continue.

We may well see other large scale landlords taking this approach but I very much doubt we’ll see any changes in the smaller landlord market.

Rob Bence, a landlord and co-founder of The Property Hub, says: 'A landlord of Get Living’s scale is able to make a move like this because if a tenant causes damage to a property or fails to pay they have enough properties (and therefore enough rental income) to offset the losses. Clearly a smaller landlord does not have this luxury.

'We may well see other large scale landlords taking this approach - particularly those with purpose built rental schemes - but I very much doubt we’ll see any changes in the smaller landlord market.'

'I'm sure that would-be renters will be attracted to the headline but a quick look at available two-bed properties on their website tells me that the average monthly rent is just shy of £2,000 a month - which is not affordable for many renters, even in London.

'I doubt that this model is where the sector is heading although there is probably room for more entrants into this niche by the larger operators.'

Government support for larger landlords

Olejnik also expects landlords with smaller portfolios to continue to ask for deposits. But is the move by Get Living setting a precedent that other landlords will eventually have to follow?

'Where we have led – with no fees and longer tenancies - others have followed,' says Young. 'We hope deposit-free renting becomes the norm.'

Philip Hammond, chancellor of the Exchequer, used last year's Autumn Statement to reveal plans to ban letting agent fees charged to tenants

The Get Living approach to providing rented accommodation is the model that the Government would like to see more landlords use.

This is in part why they have cracked down on buy-to-let recently, making it much more expensive for smaller landlords to operate and in some cases wiping out their profits altogether.

Government wants to see larger, institutional landlords offering what they see as a fairer deal for tenants.

Bence isn't convinced that this will happen any time soon however.

'Tenants don’t tend to choose properties based on finances alone. Location and type of property is key so I don’t think we’ll see swathes of renters heading to large scale landlords just for the benefit of not having to cough up a deposit,' he argues.

'It will certainly be an attraction for some but as long as landlords continue to offer fair-priced, well-kept properties they shouldn’t struggle to find tenants willing to take them.'

A bit of background

Britain's private rented sector has seen considerable change over the past 12 months. New buy-to-let property purchases now attract a 3 per cent stamp duty surcharge and the tax relief landlords can claim on their mortgage payments has begun to fall.

Stricter requirements for those with buy-to-let mortgages have also been imposed on landlords, with more of these rules due to hit in October.

The changes have driven down the number of new buy-to-lets being purchased by around half, according to the latest figures from the Council of Mortgage Lenders.

CML figures show the number of buy-to-let purchases spike before the stamp duty surcharge came in last April. Overall activity has since dampened

Figures published today by the Association of Residential Letting Agents meanwhile show that in April, the number landlords selling their buy-to-let properties remained the same, with an average of four selling per branch.

In March, the number of landlords selling up rose from three to four for the first time since November 2016, when the Government revealed plans to ban letting agent fees later this year.

Separate research from London Central Portfolio, a property developer, claimed that the capital was in the midst of a 'new build crisis' with sales of new homes in London falling as much as 41 per cent in Q4 2016 compared with the previous year.

This, they said, was driven by a 'proliferation' of new homes coming to the London market coupled with falling demand from buy-to-let investors looking to purchase new properties for their rental portfolios.

According to LCP, the London market south of the river, is beginning to suffer as large numbers of the planned 22,000 units between Battersea and Nine Elms have come to market.

Typically purchased by foreign buyers as rental investments, data analysed by LCP demonstrates a significant annual increase in available rental properties in this area amounting to 28.1 per cent.

This has been accompanied by a 6 per cent discount on asking rents over the last three months.